Ta'zir for Contractual Fraud: Evaluating Islamic Penal Sanctions as a Deterrent in Modern Contract Law

Abstract

Contractual fraud has become an increasingly significant challenge in modern business transactions, particularly when fraudulent conduct causes mass economic losses, targets vulnerable consumers, and is repeatedly committed through corporate structures. Existing contract law primarily addresses fraud through civil remedies such as damages and contract rescission. While these mechanisms compensate victims, they often fail to generate sufficient deterrent effects against systematic and recurring misconduct. This article examines the potential of ta'zir as a supplementary sanction for aggravated contractual fraud and evaluates its compatibility with Deterrence Theory. Employing a normative legal research method, this study analyzes legal doctrines, statutory regulations, Islamic criminal law principles, and relevant scholarly literature using conceptual and comparative approaches. The findings indicate that not all contractual breaches justify ta'zir sanctions; however, fraudulent conduct characterized by intentional deception (dolus), mass victimization, exploitation of vulnerable groups, and repetitive misconduct may warrant ta'zir-inspired interventions. The study further finds that enhanced financial penalties, business license revocation, director disqualification, and restorative obligations possess stronger deterrent potential than ordinary civil remedies because they increase the economic and professional costs of fraudulent behavior. This article contributes to the literature by developing a ta'zir-inspired deterrence model for aggravated contractual fraud that bridges Islamic criminal law, contract law, and modern business regulation.